Why WTP experiments help product adoption

This weekend, Northeastern University hosted a major development economics forum; the North East Universities Development Consortium (NEUDC) . Happy to go beyond marketing and business boundaries, I learned a lot! Let's focus this Newsletter on a talk of interest also to marketers and marketing scientists: the persistent adoption effect of willingness-to-pay experiments.

Prof. Jenny Aker and friends have been performing a lot of development projects in Niger, where cowpea is the primary cash crop, and mostly for national consumption:

Problem is: cowpea deteriorates to dust within 9 months, so preservation is key. Nigerians use many existing solutions, which are all quite effective: metal drums, plastic jugs, and traditional bags with rat poison. Unfortunately they each come with their own issues. Enter the Purdue Improved Crop Storage (PICS) bag, which offers a more efficient alternative:

By the time of the willingness-to-pay experiments, PICS had been in circulation for years, but adoption was only 7%. As typical in such WTP games, researchers explained the attributes and showed the PICS bag. Farmers then were shown a number of prices and asked whether they would be willing to purchase the bag the same day for that price. In the second stage, respondents drew a random price, and were given the bag at that price IF it was lower than their maximum WTP answer. Nobody declined to purchase:

The WTP results were straightforward: downward sloping demand curve, and and average WTP of about half the current retail prices for the PICS bag:

But what about the long-term effects of this experiment? PICs bags last 2-3 years depending on maintenance, so Jenny and friends looked at adoption 3.5 years after the experiment: did the respondents who got the bag in the experiment, show higher adoption and usage than those who did not get the bag?

Yes they did! This is especially striking because the new technology offers now effectiveness benefits over existing alternatives. In my opinion, this adoption effect should be even higher for typical technologies studied in WTP experiments, because they often offer superior benefits AND have not been available in the local context for years.

If you'd like to know how these long-term effects were calculated, here is the empirical strategy!

Now the puzzle: WHY do WTP experiments yield long-term adoption benefits?

Several explanations may be tested:

1) Information: only a third of respondents had not yet heard about the technology

2) Experience: stronger effects when the random draw price used as instrument for winning:

I mentioned the marketing research on 'Pay what you Want' in the best international journal in marketing , and how it is a better alternative to promotional discounts AND free sampling: because respondents thought about the value the new product would provide, they are more likely to buy it at normal price next time. Jenny appeared interested into separating this thinking effect from the fun of playing the game (with poker chips!)

Economics presentations typically have a discussant, who did not hold back:

Especially on the preliminary insights into the mechanisms:

So as always, lots of fascinating questions for future research! Thanks for a wonderful conference, NEUDC!